Cuadrilla's Francis Egan on why fracking is the future

Depending on who you believe, Francis Egan, the private equity-backed chief
executive of energy firm Cuadrilla, is either an energy maven shaping the
future of Europe’s embryonic fracking industry, or an environmental criminal
who won’t stop drilling until Blackpool blows up.

In April 2011, more than a year before Egan was hired by Cuadrilla chairman and former BP chief Lord Browne, exploratory drilling by the company on Lancashire’s Bowland shelf was found to be the cause of two small “earthquakes” in Blackpool.

The Government suspended all hydraulic fracturing or “fracking” of shale gas in the UK pending an inquiry. British environmentalists, meanwhile, turned on Cuadrilla, citing widespread environmental damage in the US, where fracking is well established.

A later official report for the Government gave the green light to fracking, saying it was safe, with the correct levels of monitoring.

In his first interview with a British newspaper, ahead of an imminent Government decision on whether to lift the moratorium, Egan argues that fracking is an economic necessity for the UK.

“Britain is spending tens of billions of pounds importing gas,” he argues.

“If we are able to develop gas resources here it’s not going to fill all our demand, but it could make a major difference for the country in terms of tax revenues, in terms of balance of payments and at a time when the economy is the pits.”

For the Cuadrilla chief executive, who previously worked for mining giant BHP Billiton and Marathon Oil, the case against fracking has been commandeered by extremists.

“We’ve heard everything from suggestions that Blackpool will sink beneath the waves to the idea that we will use the wells for nuclear waste,” he says.

“You cannot have a conversation if that is the basis of dissent. We are very happy to have a fact-based conversation. Actually, most people haven’t made up their mind and would like to have a fact-based conversation.”

Fracking, which involves pumping water into holes drilled in dense underground shale rocks to capture oil and gas deposits, has transformed the energy landscape in the US, handing America a path towards energy self-sufficiency for the first time in decades. The British government, with an eye on falling North Sea revenues and the rising price of gas imports, now wants a piece of the action.

Egan’s comments come as Ed Davey, the Secretary of State for Energy, prepares to unveil a host of financial incentives for shale gas exploration alongside the Chancellor’s Autumn Statement on Wednesday. The moratorium on fracking is likely to be lifted shortly afterward, although any extraction will have to be approved by local council planning departments.

In theory, Cuadrilla’s Lancashire field alone could supply Britain’s oil needs for more than a year and a half.

The problem is that the fracking industry – which in Europe effectively still means Cuadrilla – remains highly controversial. Yet, in an era of austerity, Egan puts the economic case for shale development.

“I was on the Tube in London the other day,” he says, beginning the argument. “There was an advertisement that said 'Britain is powered by Statoil’. Good luck to Statoil, but wouldn’t you rather the money was going to Lancashire instead of contributing to the Norwegian wealth fund?”

Egan argues that, in addition to creating thousands of jobs in the North West, development of the Bowland shelf – which stretches across Lancashire from Fleetwood in the north to Southport in the south – will provide local councils with additional revenues from taxes levied on gas extraction, reducing the tax burden on residents.

“To make it work, there has to be something in it for the local communities if you want to develop it at scale and at a reasonable pace,” he argues.

Of the two tremors in Lancashire last year, the larger measured 2.3 on the Richter scale, which Egan describes as the equivalent of him shaking the table at which we are talking.

“Coal mining activity has been creating seismic activity in excess of what we are doing in Blackpool for decades,” he argues. “The claims we cracked roads and houses are, I would say, not true.”

The Energy Select Committee has said that the environmental problems associated with fracking in the US can be overcome in the UK by tight regulation and good industry practice, although it did also say that offshore development should be prioritised over onshore projects.

Egan has a big incentive to push through his onshore development. If Cuadrilla manages to drill safely and profitably in Lancashire, this could set a precedent that will encourage the UK’s gas-rich, but environmentally cautious, neighbours – such as the Netherlands and France – to reverse their fracking bans.

For Cuadrilla and Riverstone, the company’s private-equity backer, which is run by Lord Browne, this is the ultimate goal. “Our plan is to get shale up and running in Lancashire then to repeat that model in the licences we have in the Netherlands and Poland,” says Egan.

“We think if we do it well here and we get a name for ourselves doing it well here, we can do it anywhere in Europe.”

A Europe-wide roll-out could allow Riverstone, which has invested nearly $60m (£37m) in Cuadrilla, to exit its investment through a sale of its stake, with big profits for everyone involved. Egan is proud that Riverstone – in line with the best practice of the private-equtiy industry – has incentivised every Cuadrilla employee with shares in the company.

It is clear his enthusiasm is more limited when it comes to dealing with UK regulators, certainly compared with those in Poland, where Cuadrilla acquired a new exploration licence last month.

“I think Poland is reasonably positive – there is a desire to exploit the reserve when it’s there.

“Regulation [in the UK] needs to be co-ordinated – we deal with four different regulators and they have overlapping requirements. It could be improved in terms of its efficiency.”

Prior to being headhunted by Riverstone, Egan spent time in Pakistan for BHP.

“The people there were so motivated. When I left we had the third-largest producing gas field in Pakistan, which was an amazing experience,” he says. “It transformed a part of the gas supply. It is still flowing today.”

Some of the most vocal criticism of Cuadrilla has come from the Royal Society for the Protection of Birds (RSPB). The Bowland shelf is home to two important species – the pink-footed goose and the Hooper swan, for which the UK is home to 85pc of the global population.

For the RSPB and other environmental charities, the danger is that if Cuadrilla develops the proposed 800 well heads in Lancashire, it will radically alter the environment and bird life will be disturbed in what has been designated as a special environmental area.

The company extended some of its drilling into the birds’ feeding season, prompting anger from conservationists, but has now provided alternative feeding areas for the birds, even hiding its drilling rigs with hay bails.

“The birds are happy, yes, because they are not being shot by farmers any more – that was one of our mitigations,” Egan responds with a hint of a smile.

On the possibility of water pollution – one of the biggest dangers of fracking – Egan says: “The water where we are drilling [in Lancashire] is saltier than the Red Sea. United Utilities won’t even use it for industrial water. That said, we use all the same protections we would do for [a clean water] aquifer.”

Davey is expected to give Cuadrilla the go-ahead to start extracting gas on a small scale before Christmas. Cuadrilla has yet to recoup a penny for investors and Egan warns they cannot wait forever.

“We have been waiting for 18 months. We don’t have infinite patience, our investors don’t have infinite patience.”

For Cuadrilla, its chief executive and the politicians it is make-your-mind-up time.

Francis Egan CV

Age 51

Family Married, with two children

Career Eight years with Marathon Oil, 20 years with BHP Billiton in engineering and commercial roles

Not a lot of people know that... Francis once got stuck in the desert on a road trip between Tripoli and Benghazi in Libya

Cuadrilla facts

200 trillion

Amount of gas in cubic tons contained in the Bowland shelf. Equivalent to one-and-a-half-years of UK consumption